Contract Mining and Plant Rental. Investor day presentation 29 November 2011

Transcription

1 Contract Mining and Plant Rental Investor day presentation 29 November 2011

2 Divisional overview Largest agestdivision so of Eqstra 42% of revenues eeuesand d50% of revenue eeueproducing (eas (leasing) assets Primary business units MCC Contracts and MCC Plant Hire One of two large domestic open cast mining contractors in southern Africa Largest plant hire fleet in southern Africa Targeted job range R400 million R1 billion in capex 4729 employees (+6.6%) 2

3 The open cast contract mining model in simple terms Significant capital needs to be allocated to both ore extraction and the metal processing plant Major contract miners have the expertise and balance sheet strength to assist with waste and ore extraction A competitive bidding process is undertaken Defined risk sharing mechanisms between mine owner and contractor Contractor aims to generate a sufficient return on invested capital 3

4 Plant hire business model 10 15% 15% of divisional revenues Sell hours based on value of equipment and market demand Target market is: Infrastructure development Government and parastatals Construction and Mining Equipment availability is key New branches in Windhoek, Namibia and in Tete, Mozambique activity picking up Construction market remains depressed Hire fleet is used to supplement contract mining at times and vice versa 4

5 Fleet size Total fleet of approximately units Includes approximately revenue earning units Major items include: 2 Liebherr 600t excavators 21 Liebherr 250t / 340t excavators 22 Liebherr 125t excavators t /250t rigid dump trucks t rigid dump trucks t rigid dump trucks 37 D10 / D11 dozers / 993 front end loaders 234 Articulated dump trucks M graders H graders 26 Drill rigs 5

6 Summary financials Full year 6 monthly Rm % ch H1 10 H2 10 H1 11 H2 11 Leasing assets % Inventories % Other assets % Operating assets % Revenue % EBITDA % Operating profit % Net finance costs % Net impairment of assets (50) (50) PBT (LBT) % (13) Operating margin 10.1% 11.4% 12.2% 10.6% 10.4% 9.8% EBITDA to net finance costs 4.4x 4.0x 4.0x 3.9x 4.7x 4.1x 6

7 Mining contracts Client Mineral/Service Location Monthly volumes Platmin Pilanesberg Platinum Mine Platinum Northam, North West m 3 03/2014 Xstrata Base Metals Eland Platinum Mine Platinum Brits, North West m 3 10/2011 Aquarius Platinum Marikana Mine Platinum Materials Handling End date Rustenburg, North West m 3 12/2013 ARM/Norilsk Joint Venture Nkomati Mine Nickel Machadodorp, Mpumalanga m 3 09/2014 ARM/Norilsk Joint Venture Nkomati Mine Drilling Machadodorp, Mpumalanga m 12/2015 Tharisa Minerals Chrome Marikana, North West m 3 06/2017 Riversdale Mining Benga Mine Coal Tete, Mozambique m 3 03/2015 DMO Project Coal Witbank, Mpumalanga m 3 05/2012 Khutala Colliery Coal Ogies, Mpumalanga m 3 04/2013 Total Coal Dorstfontein East Coal Kriel, Mpumalanga m 3 01/2016 Coal of Africa Vele Colliery* Coal Musina, Limpopo m 3 * 4 th quarter 2011 expected start date 7

8 Commodity diversification 2011 Revenue (R3 189m) 30% 39% 31% Commodity diversification objective achieved Revenues from coal expected to increase further in FY2012 Only material platinum project is now Pilanesberg Platinum Mine Prospects in platinum, coal, manganese, copper, uranium and gold Platinum Energy (coal and uranium) Oh Other and Plant Rental 8

9 Contract mining operating strategy Maintain sustainability of earnings through: Correct project pricing upfront Management of contract revisions Early risk ikidentification ifi i and assessment Maintain targeted production levels at all times Focus on machine care and maintenance Create a settled workforce (including low staff turnover) Strong client relationships to create sustainable partnerships Make safety a way of living, not a restriction 9

10 Production strategy Ideal contract size is > 1,000,000 m 3 (cubes) per month Targeted monthly production based on client call rates a minimum is stipulated in the contract Production incentive scheme introduced : Scheme aligns production output targets with annual employee incentive scheme this was not the case previously Material difference observed in employee behavior since scheme introduced 10

11 Preventative maintenance Mid life (3 4 years) maintenance costs can negatively impact on operating results if capex has been lumpy MCC practices a preventative tti maintenance strategy: t Component replacement before failure Focus on high level in service maintenance to prevent machine failure Enough trained staff on site to maintain a high level of focus 11

12 Fleet replacement policy Optimised fleet replacement based on life cycle costing / break even even that achieves maximum productivity Replacement policy: Large excavators Medium excavators Rigid trucks hours hours hours Depreciation Moved to hourly based in FY2012 Useful life remains consistent Bi annual residual testing Disposal profits being generated 12

13 Availability Equipment aaab availability tys is measured ed according to how many hours a specific c item of equipment actually was mechanically available to work per shift i.e. the % of time mechanically able to work per shift Poor levels of availability often lead to poor utilisation as equipment work in teams Addressing poor availability: Increased maintenance spend this has had an impact on recently reported operating margins Internal organisational structure clarification of reporting lines technical managers assigned for specific products Monthly engineering meetings focus on availability, costs etc. Increased artisan headcount IncreasedMidrand workshop capacity Introduce Service Level Agreements with major suppliers 13

14 Fleet utilisation Utilisation is measured ed according to how many hours a specific c item of equipment e actually worked as a % of the available hours it could have worked i.e. was mechanically able to work There is room for improvement in the current utilisation rate Factors impacting utilisation: Strike action Inclement weather Equipment replacement cycle lag Project transitions Bad scheduling practices Bad mining practices e.g. excessive tramming Operator availability 14

15 Addressing under utilisation Daily continuous focus on monitoring cubic c meters moved per hour of all major movers Comparisons to benchmarks Improve training through innovative technology Utilisation targets to include moving average analysis to ensure a focus on continuous improvement Production incentives Reduce expansion capital expenditure Tender for additional projects with existing equipment 15

16 Equipment purchasing policy Equipment standardisation based on life cycle costing Spares availability and back up is key Some suppliers offer an attractive buy back incentive Equipment lead times increasing, i but has come back kin recent months for certain lines Long term relationships with suppliers are critical 16

17 Investment in technology Legacy island d/ stand alone a systems s have become e cumbersome e New best in class ERP system being commissioned Board approval to implement SAP ERP system in 2012 Aim is to deliver business value rather than just technology 17

18 Training and development Shortage of suitably skilled workers remains prevalent Technical training: MCC operates its own formal training academy in Benoni, Gauteng The academy is fully accredited by industry training bodies Operator training: Advanced simulator technologies introduced On site training facilities includes: Simulators with instructors Classrooms and teachers to accommodate learners during shifts Centre for Production Training for supervisors and foremen 18

19 Industrial relations Industrial relations is a key operational and strategic risk Both thlegal land illegal l strike tik action experienced Growth in company in recent years has elevated this challenge NUM has gained increased membership in the group Executive capacity strengthened by recent appointment of Mr Thabo Mosoane as MCC s HR Executive Active executive involvement in IR negotiations 19

20 Income statement key points Revenue Tonnage moved x contracted rate Very sensitive to disruptions catch up not possible Costs labour costs have increased due to SAFCEC determinations Business model dlrequires at least a 14% operating margin to achieve 20% targeted ROE Operating margin negatively impacted by: low plant utilisation high planned preventative maintenance expenses new contract start up costs Depreciation policy moved to hourly depreciation in FY2012 better matching of costs with revenues. Heavy equipment value determined by hours worked not age Targeted depreciation as a percentage of revenue = 18 20% Benga 5 year tax concession will lower divisional taxation rate 20

21 Asset turnover ratio 1:1 asset turnover ratio (Revenue / Leasing assets) targeted 0.83 for FY2011 Normally impacted by low utilisation adverse weather, strike action, movement of plant at end of contracts, commissioning of new plant, low mechanical availability Benga assets purchased towards the end of FY2011 has distorted the historical relationship 4,500 4,000 3,500 3,000 Rm 2,500 2,000 1,500 1, Revenue Leasing Assets 21

22 Balance sheet key points Optimal gearing target 250% 300% Individual project hurdle rate 25% ROE Working capital to revenue targeted at neutral during the year 4.4% at FY2011 Inventories minimal mining equipment spares, tyres and diesel Accounts receivable payment terms are 30 days net 22

23 Capital expenditure outlook Expansion capexincreased ceasedsg significantly tyin FY2011 to R931m (FY2010: 0: R385m) Benga project R645m Replacement capex similarly increased to R775m (FY2010: R301m) Optimised average fleet age Current estimate of expansion capex for FY2012 is R374m Balance of Benga project Excludes new significant contract wins Targeted replacement capex for FY2012 R797m TtlFY2012 Total capex projected at R1,171m

24 FY2012 Revenue outlook 1H 2012 Benefit of full impact of Benga equipment deliveries Eland Platinum ended October 2011 PPM output to fully recover by 3Q FY2012 Dorstfontein East ramp up (into 2H) 2H 2012 Vele ramp up 24

25 25 QUESTIONS?